carousel | April 21, 2017

The investment miscalculation that caused the Flint water crisis

Dennis Price
ImpactAlpha Editor

Dennis Price

Cost savings were the stated driver of the 2014 decision by Flint, Mich. officials to switch water systems — to one tainted with lead and other toxins.

But as events have shown, that decision lead to vastly higher costs, starting with the health of Flint’s 100,000 resident, including 12 deaths so far, lifetime birth defects from lead poisoning and poor hygiene from the lack of trusted water. Then there are legal costs for the felony trials of government employees, the replacement of 6,000 water pipes citywide, and incalculable reputation damage to Flint and to Michigan.

How could the bean counters have gotten it so wrong? They failed to perform a true-cost analysis and calculate the true return on their investment. That failure is instructive as the Trump Administration repeals a rule that federal regulations must figure the “social cost of carbon” in their cost-benefit analysis, an effort to account for public health costs. That cost is currently calculated at about $40 per metric ton of carbon.

Without such frameworks, government, business and investors routinely miscalculate the return-on-investment of new programs and projects.

How can they do better? Shubha Kumar, writing in Triple Pundit, suggests projects account for their social return on investment (SROI) to evaluate investments such as clean water access and global public health.

“In the case of Flint, the cost to replace pipelines burdened a state already massively in debt.” writes Kumar, a public health professor at the University of Southern California. Less developed region of the world face additional consequences, she says where the lack of access “compounds economic issues such as farming, production, energy, food and more.”

Michigan Attorney General Bill Schuette targeted the original cost-benefit calculation in Flint. “This fixation [on money] has cost lives,” he said. “This fixation came at the expense of protecting the health and safety of Flint. … It’s all about numbers over people, money over health.”

As the analysis showed, that’s not quite right. A true fixation on costs would have prioritized access to clean water for Flint residents.

Flint officials originally projected savings of $200 million over 25 years from the move to switch the city’s water source. Now, the costs associated with just the elevated lead levels in the blood of 8,000 Flint children are estimated as at least $400 million. Those costs are driven by “the likelihood of lower IQ levels for those exposed, leading to lost economic productivity, reliance on welfare and costs to the criminal justice system,” according to Peter Muennig, a professor of public health at Columbia University.

Photo credit: Carlos Osorio/AP